Q2 2010 Earnings Call Transcript

Operator: Good morning. My name is Gordon and I'll be your conference operator today. At this time I'd like to welcome everyone to the Valeant Pharmaceuticals' Second Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. Thank you.

In addition to this live webcast a copy of today's slide presentation could be found on our website under the Investor Relations section within the webcast event details.

Before we begin, please turn to your attention to the second slide containing our cautionary statement regarding forward-looking statements and other important information. Certain statements made in this presentation and other statements made during this call and the Q&A session afterwards may constitute forward-looking statements. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. These include, but are not limited to risks and uncertainties discussed in the Company's most recent annual or quarterly report filed with the SEC, and risks and uncertainties relating to the proposed merger as detailed from time-to-time in Valeant's and Biovail Corporation's filings with the SEC, and in Biovail's case the Canadian Securities Administrators.

In addition to supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principals, the Company uses non-GAAP financial measures that exclude certain items. These non-GAAP items include financial measures such as adjusted cash EPS, product sales growth and adjusted cash flow from operations. Reconciliations of GAAP to non-GAAP measures can be found in the tables to our second quarter financial press release, which was issued earlier today, and can be found on our website at www.valeant.com.

Please also note the additional information we've included regarding our proposed merger with Biovail and where investors can find important information about the proposed transaction.

With that, I will turn the call over to Mike Pearson.

J. Michael Pearson - Chairman and CEO: Thank you, Laurie. Good morning everyone, and thank you for joining us. On today's call, I would like to first discuss our second quarter results and the outlook for the rest of the year. Second, update you on our progress against our six strategic initiatives for 2010. Third, I'll have Rajiv discuss Valeant's operations. Fourth, have Peter give some more details around our financial performance. Finally, at the end, I would like to briefly discuss our integration planning process with the merger with Biovail.

On slide three. Our businesses again delivered another solid quarter on both the top line and the bottom line. Each of our businesses delivered double-digit growth and contributed to our overall product sales growth of 32% for the quarter and 33% for the year-to-date. Our cash EPS also grew 33% on an annual basis and we're raising our earnings guidance for the year to $2.80 to $3.05 cash EPS.

Transcript Call Date 08/02/2010

Operator: Corey Davis, Jefferies & Company.

Corey Davis - Jefferies & Company: I think you are the only Company that I have every covered that gives organic growth rates, so thanks very much of that, but a couple of questions around that. First, can you just remind everybody of your strict definition for what qualifies for organic and what's excluded from that? Second, can you take a rough stab at what your organic EPS growth was in this quarter?

J. Michael Pearson - Chairman and CEO: Peter do you want to cover the calculation for organic growth and then I will try the second part of the question.

Peter J. Blott - EVP and CFO: The two elements we remove as far as the product sales growth are all currency effects, so essentially we take out the currency effects related to sales and that table I think is table three in the notes Then we also exclude the acquisitions of all the businesses and products that we've bought in the last 12 months. So, essentially anything that was more than 12 months ago gets included in organic growth, but any of the acquisitions or products bought in the last 12 months gets excluded out of that organic growth calculation.

J. Michael Pearson - Chairman and CEO: In terms of the second question, Corey, I cannot give you a precise answer, but I can tell you tall our organic earnings growth is significantly higher than our organic sales growth because again all of them have come with significant synergies when we made these acquisitions in terms of the months that now are rolling into a ongoing year-on-year organic growth rate. In terms of our businesses as you can see through our continued reduction in SG&A we continue to gain efficiencies in all our businesses.

Peter J. Blott - EVP and CFO: Maybe, Corey one another point to say. I think we did highlight because of some of the acquisitions in the second quarter came relatively late on in the quarter such as Aton. They didn't contribute that much, but they'll contribute more in the second half of the year. That one was only in for basically one month of the quarter. Yet with the money that we borrowed, at the start of the second quarter we have the interest expense throughout the quarter.

Corey Davis - Jefferies & Company: When you give your report – when you report Q3 will you tease out the effects of the acquisitions all the way down to the earnings line?

J. Michael Pearson - Chairman and CEO: What we're going to do is (in this) case we have sort of a model and NPV model that we do in terms of that we take to the Board to justify every acquisition. We'll do our best to figure out what is the cash now being generated by those acquisitions. So, we'll be focusing on cash flow generation opposed to earnings generation.

Peter J. Blott - EVP and CFO: Corey, there is some interaction when we do integrate these businesses into our existing businesses in each of the – (that through). There is some degree of synergies that we always expect and therefore some things like our G&A expense is very good to go. So, actually split between what came from the acquisitions and what came from our products. Therefore, we'll make that distinction when we do the third quarter earnings call and update. Essentially, that's going to be similar to how we did it last year.

Corey Davis - Jefferies & Company: Last question I promise. In the second half of the year in order to hit your guidance, obviously you must have confidence in Latin America and in Europe, but any more specifics you can give us as to how you are going to get there?